Daily Commentary

MarketMinder’s View: This piece delves into the latest forecasts from the Paris-based Organisation for Economic Co-operation and Development (OECD), which project UK GDP will grow just 0.4% in 2024 and 1% in 2025. This might catch some eyeballs, considering the figures are down from previous estimates and weaker than other major economies, including Canada, France, Germany, Japan and the US. However, we see limited takeaways for investors here. One, economic forecasts aren’t predictive. In our view, they say more about sentiment as the recent past tends to influence these projections—and the UK’s economic struggles are very well known. Two, even if UK GDP growth lags peers, that isn’t automatically a reason to avoid UK stocks. Stocks move on the gap between reality and expectations—as long as sentiment toward the UK remains low, even middling economic growth can be enough to boost stocks. For example, see UK stocks and GDP in 2023’s back half. Amid stubbornly high inflation and BoE rate hikes, sentiment toward the island nation was low. GDP even contracted on a quarterly basis in Q3 and Q4—yet stocks rose 5.6% in GBP over the same period (per FactSet). Two quarterly contractions aren’t great, but they were better than the deep recession pundits had predicted. Persistently low sentiment toward the UK sets up plenty of room for positive surprise.

MarketMinder’s View: This piece centers on one of the biggest false boogeymen we have seen in financial news lately: aging demographics. “The 693,000 babies born in Germany last year marked the lowest level since 2013, and was a decline of 6.2 per cent from the previous year, according to figures published on Thursday by Destatis, the federal statistical office. Falling birth rates, ageing societies and shrinking workforces are one of the biggest problems for policymakers across Europe, as they add to the strain on stretched public finances and weaken already tepid growth rates.” It isn’t just Germany: the US, UK and China have all seen falling birthrates for years (outside of a pandemic-era baby boomlet). We understand the concern—logically, fewer people in the future seems like it would hinder growth—but reality is a tad more complex. One, human capital is just one factor impacting economic development—gains in financial capital, technological advancement and productivity can boost economic growth even if the population gets older or shrinks. Two, today’s trends aren’t concrete. Rising living standards improve life expectancy, and political factors like immigration can impact a society’s population. Three, and most important for investors, such trends take years—even decades—to materialize (if they do at all). Demographic trends’ slow-moving nature decreases their ability to materially affect the economic and political variables impacting corporate profits over the next 3 – 30 months—the timeframe stocks care about most. From an investment standpoint, we wouldn’t sweat aging populations—in Germany or elsewhere. For more, see yesterday’s commentary, “No Need to Cry Over Falling Birthrates.”

MarketMinder’s View: Before we begin, this piece mentions several investments, so a friendly reminder that MarketMinder doesn’t make individual security recommendations. The titular “why” here is rooted in gold’s strong performance so far this year. “Gold prices hit a record $2,431.55 in April before pulling back slightly. For the year, the yellow metal has gained over 15%, outpacing the S&P 500’s 5.6% rise through Tuesday. The yield on the 10-year Treasury rose to 4.683%, registering the largest monthly gain since September 2022, as tracked by Dow Jones Market Data Group.” To us, this reeks of recency bias and, more importantly, misperceives bonds’ purpose in a blended portfolio. In our view, fixed income’s chief function isn’t to outpace inflation or yield whopping returns, but rather, to mitigate short-term volatility from stock ownership. Moreover, we are skeptical of the article’s claims that gold is a great inflation hedge. Its record is spotty at best, with little to no correlation with rising prices and long stretches of falling as prices rise. Sure, the shiny metal is up solidly this year, but history shows it is more volatile than stocks (and much more than bonds)—with lower long-term returns. In our view, gold has no special powers—it is simply a shiny metal that is prone to big booms and busts tied to sentiment.